Pakistan Parliament Approves Guidelines to Change U.S. Ties

By Haris Anwar - Apr 13, 2012

Pakistan’s parliament unanimously approved proposals to reset ties with the U.S., demanding an end to drone strikes inside the country while agreeing to the reopening of NATO supply routes to neighboring Afghanistan.

Pakistan is seeking to redraw a relationship strained by a November border attack by American helicopters that killed 24 Pakistani soldiers. In protest, Pakistan closed frontier crossings used to support U.S.-led troops in Afghanistan and suspended military and intelligence cooperation.

Washington needs Pakistan’s help as President Barack Obama withdraws troops from Afghanistan and bids to negotiate peace terms with Taliban guerrillas and other militant groups after a decade-long conflict. The terms approved yesterday are not binding on Pakistan’s government.

“This resolution seeks to satisfy almost every political group in the country,” said Rashid Khan, a professor of international relations at the University of Sargodha in central Pakistan. “The key challenge is how much the U.S. is willing to give up in negotiations with Gilani’s government and whether the U.S. will shift its strategy in which drone attacks are so crucial.”

Drone aircraft missions run by the Central Intelligence Agency are unpopular in Pakistan, where they are reported to kill civilians as well as the militants they target. Pilotless aircraft are used to collect intelligence and kill members of the Taliban, al-Qaeda and allied groups in their sanctuaries in Pakistan’s northwestern tribal areas and are central to the U.S. strategy to curb militancy in the region.
‘Tough Year’

Pentagon spokesman George Little said the U.S. military looked forward to engaging in discussions once Pakistan provides a formal proposal.

“This is a key relationship,” Little told reporters today. He said the U.S. wants relations with Pakistan to “settle down” after what “has been a tough year for any number of reasons.”

The U.S. ordered 117 missile strikes by Predator drone aircraft in 2010, a figure that fell to 64 last year, according to the Long War Journal, a website that monitors the conflict. So far in 2012, there have been 11 such attacks, the website said, basing its data on reports in the Pakistani and foreign media. In 2011, the strikes are reported to have killed 405 Islamic militants and 30 civilians, the website figures show.
Trucking Supplies

After three weeks of debate, ruling and opposition lawmakers in Pakistan’s parliament backed guidelines that permit the U.S.-led coalition fighting the Afghan Taliban to truck non- lethal supplies through Pakistan, state-run Pakistan Television reported.

“Today’s resolution will enrich your respect and dignity,” Prime Minister Yousuf Raza Gilani said in an address to parliament late yesterday. “I assure you that we will get these enforced in letter and spirit.”

The resolution stated that Pakistan must not allow private security contractors to operate on its soil and that other nations wouldn’t be permitted to establish bases in the country, meeting opposition party demands. The resolution added that “no overt or covert operations” can be carried out in Pakistan by foreign security forces.

The country’s main political parties, including religious groups that oppose Pakistan’s alliance with the U.S., said that Pakistan should seek an unconditional apology from the U.S. for the November airstrike.
‘Balanced Approach’

While the U.S. military said in a December report that poor coordination by both armies was to blame for the border clash, Pakistan’s army on Jan. 23 underscored its stance that U.S. forces bear the entire responsibility.

Obama said last month as he met Gilani in Seoul that he’s confident the U.S. and Pakistan will be able to build a relationship that both recognizes Pakistani sovereignty and addresses American security concerns. Obama said he seeks to achieve “the kind of balanced approach” that respects Pakistan’s territorial integrity while allowing the U.S. to “battle terrorists who have targeted us in the past.”

The then-chairman of the U.S. Joint Chiefs of Staff, Admiral Mike Mullen, last year accused Pakistan’s main military intelligence agency of directly supporting Islamic militant factions such as the Haqqani network that attack American forces in Afghanistan.

Relations between the U.S. and Pakistan’s military and civilian leaderships have had a troubled year, with tensions reaching a high point after the American commando raid that killed Osama bin Laden in Abbottabad, about 50 kilometers (30 miles) north of Islamabad, Pakistan’s capital.

To contact the reporter on this story: Haris Anwar in Islamabad at hanwar2@bloomberg.net

To contact the editor responsible for this story: Peter Hirschberg at phirschberg@bloomberg.net
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Infosys Plunges Most in a Year After Forecast Falls Short

By Zachary Tracer - Apr 13, 2012

Infosys Ltd. (INFO), India’s second largest software-services exporter, sank the most in a year in New York trading after forecasting sales that missed analysts’ estimates.

American depositary receipts of the Bangalore, India-based company tumbled 13 percent to $49.15 at the close in New York, their biggest drop since April 15, 2011. The stock earlier slid as much as 15 percent for the biggest decline in nine years. Infosys’ Mumbai-traded shares lost 13 percent to 2,402.55 rupees, the equivalent of $46.64.

Sales in the year that began April 1 may be between 384.3 billion rupees ($7.5 billion) and 391.4 billion rupees, Infosys said in a statement today. Analysts expected revenue of 396.3 billion rupees for the period, the median of 64 estimates compiled by Bloomberg. The company also reported fourth-quarter sales that were lower than analysts predicted.

“Their growth rate for next year is below industry levels,” Joseph Foresi, a Boston-based analyst at Janney Montgomery Scott LLC. who has rated Infosys ADRs neutral since Feb. 28, said by phone. “Infosys has typically outperformed the industry.”

ADRs of Wipro Ltd. (WPRO), India’s third-largest software exporter, dropped 7.2 percent in New York to $9.99, the biggest drop since August.

The Bank of New York Mellon Corp. (BK) India ADR Index slid 6.5 percent, the largest drop since August, to 1,016.63, the lowest level since January.

To contact the reporter on this story: Zachary Tracer in New York at ztracer1@bloomberg.net

To contact the editor responsible for this story: Emma O’Brien at eobrien6@bloomberg.net
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Air India Set for Bailouts Exceeding Kingfisher’s Value

By Karthikeyan Sundaram - Apr 13, 2012

Air India Ltd., the unprofitable state-owned carrier, may get government bailouts totaling 300 billion rupees ($5.8 billion), an amount about five times the market value of the nation’s three listed airlines.

The cash injections through 2020, in the form of new equity, will be tied to performance milestones such as percentage of seats filled, Aviation Minister Ajit Singh told reporters in New Delhi yesterday after the cabinet approved a 67.5 billion rupee bailout. He didn’t say if that figure was included in the 300 billion-rupee tally.

Further support for Air India may add to pressure on Kingfisher Airlines Ltd. (KAIR) and Jet Airways (India) Ltd., which are struggling to turn surging travel demand into profit because of price wars and rising fuel costs. The carriers both fell in Mumbai trading yesterday after the government backed the Air India plan without making a decision on whether to let local carriers sell stakes to overseas operators.

“I see very little justification for the government to actively participate in the airline industry,”said Rishikesha Krishnan, a professor at the Indian Institute of Management, Bangalore, who has written papers on Indian aviation industry. “The government investing in Air India does distort the market to some extent.”

Singh said he expects Air India to make an operating profit by 2018 as it restructures operations. The government also approved the carrier’s plans to add 27 Boeing Co. (BA) 787s and three 777s.
49 percent

The cabinet will take a decision “soon” on whether to allow local carriers to sell as much as 49 percent to overseas airlines, he said. Air India would also probably be able to sell a stake if it wanted, he said.

Kingfisher changed hands at 19.9 rupees, up 3 percent, at 9:31 a.m. in Mumbai, after jumping as much as 9.8 percent. Jet Airways gained as much as 1.7 percent while SpiceJet Ltd. (SJET) rose 1.2 percent.

The government will consider investment proposals by foreign carriers after the rule change on a “case by case” basis, Singh said. Management control will remain with Indian executives, he said. A panel of ministers has already backed the proposal.

Kingfisher, which is seeking funds after more than 10 quarters of losses, has said that potential investments hinge on the new rule coming into force. The carrier has slumped 56 percent in the past year, giving it a market value of about 12 billion rupees, as it slashes flights and struggles to pay bills.
Aircraft Maintenance

Air India, which has already received 32 billion rupees of government aid since April 2009, will separate its aircraft maintenance and ground handling operations as part of the restructuring, Singh said.

The carrier has been unprofitable since its 2007 merger with state-owned domestic operator Indian Airlines Ltd. It piled up losses of about 181 billion rupees in the three years ended March 31, 2011, Vayalar Ravi, the then aviation minister, told parliament in November.

The airline has failed to turn surging demand into profit as it struggles to combine operations following the merger. It has 263 employees per aircraft compared to 102 of closely held IndiGo, the only profitable carrier in India.

Air India’s debts also swelled to 438 billion rupees following orders in 2005 and 2006 for 111 planes from Airbus SAS and Boeing. The airline has a fleet of 121 planes and carried 7.5 million passengers in local routes last year.

Jet Airways (JETIN), which has 102 planes, carried 11 million passengers last year and had a market value of 30 billion rupees. SpiceJet, with a market value of 12.4 billion rupees, has a fleet of 39 aircraft and carried 9.6 million passengers.

To contact the reporter on this story: Karthikeyan Sundaram in New Delhi at kmeenakshisu@bloomberg.net

To contact the editor responsible for this story: Neil Denslow at ndenslow@bloomberg.net
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India’s Industrial Output Rises Less Than Estimated

By Kartik Goyal - Apr 12, 2012

Indian industrial production rose less than estimated in February as weaker overseas demand and the highest interest rates since 2008 curbed output.

Production (INPIINDY) at factories, utilities and mines advanced 4.1 percent from a year earlier, compared with a revised 1.1 percent gain in January, the Central Statistical Office said in a statement in New Delhi today. The median of 36 estimates in a Bloomberg News survey was for a 6.7 percent gain.

The Reserve Bank of India, which reviews policy on April 17, has signaled readiness to lower borrowing costs to bolster domestic spending and counter export threats from easing Chinese expansion, slower U.S. jobs growth and Europe’s debt crisis. At the same time, the monetary authority has flagged inflation risks from oil prices, a weaker rupee and government spending.

“The direction of monetary policy is towards easing due to softness in growth and inflation,” Killol Pandya, the Mumbai- based head of fixed-income investment at the local unit of Daiwa Asset Management Co., said before the report. Still, the Reserve Bank will be wary of reducing rates too soon, Pandya said.

Indian inflation cooled to 6.65 percent last month from 6.95 percent in February, holding near a 26-month low, according to another Bloomberg survey ahead of data due April 16.

The Reserve Bank raised its benchmark repurchase rate by a record 3.75 percentage points from March 2010 to October last year, to 8.5 percent, seeking to quell price pressures.

While it kept the measure unchanged for a third meeting in March, the monetary authority has reduced the amount lenders need to set aside as reserves twice in 2012 to ease a cash squeeze threatening growth.
Interest-Rate Outlook

The central bank is set to reduce borrowing costs by as much as 1 percentage point in the financial year through March 2013, said Suvodeep Rakshit, an economist at Kotak Securities Ltd. in Mumbai. Rate actions will be based on whether current inflation levels are sustainable and the credibility of efforts to curb the fiscal deficit, he said.

Emerging markets from Brazil to the Philippines have lowered rates in recent months to shield expansion as Europe’s sovereign-debt woes cloud the global outlook.

Government estimates show Asia’s third-largest economy expanded 6.9 percent in the year through March 2012, the least in three years, as costlier credit hampered investment. China’s economy probably expanded 8.4 percent in the first quarter, the slowest pace in almost three years, setting the stage for monetary loosening, a Bloomberg survey showed.
Singh’s Challenge

Prime Minister Manmohan Singh’s government is facing one of the most challenging periods since taking office in 2004, as fiscal and current-account deficits threaten to hamper growth.

In the annual budget on March 16, the administration announced record borrowing needs to plug a fiscal shortfall estimated at 5.1 percent of gross domestic product in 2012-2013. The current-account gap was $19.6 billion in the three months through December, the worst quarterly performance on record.

Allegations of graft against officials and policy reversals have further hindered Singh’s economic agenda. Among the setbacks was the suspension in December of plans to open India’s retail industry to foreign companies such as Wal-Mart Stores Inc.

Trade organizations have said businesses around the world are re-evaluating investments in India due to uncertainty over the nation’s tax laws following changes announced in the budget.

To contact the reporter on this story: Kartik Goyal in Mumbai at kgoyal@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net.
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Indian Economy to Grow 7% as Investment Stays Subdued, ADB Says

By Sunil Jagtiani - Apr 10, 2012

India’s economy may grow at near the slowest pace since 2009 this year as investment remains subdued, the Asian Development Bank said.

Gross domestic product will expand 7 percent in the year through March, the Manila-based lender said in its Asian Development Outlook 2012 report today, lower than a September forecast of 8.3 percent. Investment is set to stay “lackluster for some time” after new project announcements fell, it said.

“The global environment remains fragile and a worsening of the situation in the euro zone would have a significant adverse impact,” the ADB said. “A poor monsoon, fiscal slippage, or a continued policy logjam to resolve some of the longstanding issues would also prove detrimental to growth.”

The Reserve Bank of India has signaled readiness to lower interest rates from the highest level since 2008 to bolster expansion, while flagging inflation risks from government spending, energy prices and a weaker rupee. Policy gridlock and tax changes in the annual budget last month have clouded the outlook for investment flows into Asia’s third-largest economy.

India’s GDP rose 6.9 percent in the 12 months through March 2012, the least in three years, as costlier credit hurt expansion, government estimates show.

Cuts in borrowing costs, reviving demand for Indian exports, some progress on “stalled reforms” and fewer bottlenecks should boost industrial activity in the second half of the current fiscal year and into the 2013-2014 period, the ADB said.

“But their effect is likely to be limited until the government eliminates the policy issues,” the lender said.
Inflation Prediction

Indian inflation was 6.95 percent in February, near a 26- month low. Price increases have eased after the Reserve Bank raised rates by a record 3.75 percentage points from March 2010 to October last year, to 8.5 percent.

Still, India’s inflation remains the fastest in the so- called BRIC group of major emerging economies that also includes Brazil, Russia and China. The ADB predicted prices will rise 7 percent in the current financial year, and 6.5 percent in the 12 months through March 2014 partly on easing oil costs.

India will grow 7.5 percent in the next fiscal year as the global economy recovers, the lender said. The targets for expenditure growth and reductions in subsidies set out in the March 16 annual budget “seem optimistic,” the ADB also said.

Prime Minister Manmohan Singh’s government is facing one of the most challenging periods since taking office in 2004. Allegations of graft against officials, inflation and policy reversals have hindered Singh’s economic agenda.

Among the setbacks was the suspension in December of plans to open India’s retail industry to foreign companies such as Wal-Mart Stores Inc. Trade organizations have also said that companies around the world are re-evaluating investments in India because of uncertainty over the nation’s tax laws.

Data on planned capital spending from the Centre for Monitoring Indian Economy signal a “sharp” increase in the number of stalled projects, reflecting “structural bottlenecks related to fuel and power shortages, delays in environmental clearance, and other policy hurdles,” the ADB said.

To contact the reporter on this story: Sunil Jagtiani in New Delhi at sjagtiani@bloomberg.net;

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net
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Mukherjee Crowds Out Issuers With Indian Government Glut

By Anoop Agrawal - Apr 8, 2012

Indian companies are reviewing plans to sell rupee-denominated bonds after Finance Minister Pranab Mukherjee’s proposal to issue record government debt drove borrowing costs to the highest in four months.

Yields on five-year company notes with top ratings jumped to 9.64 percent on April 3, from 9.45 percent a week earlier, when the government announced plans to increase issuance by 50 percent, according to data compiled by Bloomberg. Average yields on global investment-grade companies fell to 3.42 percent on April 4, from 3.95 percent at the end of last year, according to Bank of America Merrill Lynch indexes.

Mukherjee is seeking to raise 3.7 trillion rupees ($72.4 billion) from debt offerings through September as Asia’s third- largest economy funds a budget deficit estimated at 5.1 percent of gross domestic product. National Housing Bank, a state-owned lender to mortgage companies, and cement maker Jaiprakash Associates Ltd. (JPA) will review financing plans as government sales drive up borrowing costs and make it harder for the central bank to cut interest rates.

“The government is borrowing too much and the banking system is not able to provide as much funding to both them and the private sector,” Pratip Chaudhuri, chairman of State Bank of India, the nation’s largest lender, said in an interview from Mumbai on April 4, before markets closed for a two-day bank holiday. “The ability of customers to borrow is declining, which is softening demand for credit.”
‘Imminent Reduction’

Jaiprakash Associates, which has about 18 percent of its $2.32 billion of bonds outstanding coming due this year, may cut sales after the announcement, Rahul Kumar, chief financial officer, said in an interview from New Delhi April 3.

“A reduction is rather imminent considering the sudden jump in yields,” Kumar said. “What was planned a few weeks ago doesn’t look feasible.”

The government plans to seek 63 percent of its annual borrowing in the April to September period, Economic Affairs Secretary R. Gopalan said on March 27.

The Reserve Bank of India raised borrowing costs 13 times in the past two years to curb inflation, the fastest pace of increases by any monetary authority in Asia, making it more expensive to sell rupee-denominated debt. Policy makers will next meet on April 17 to decide on interest rates.

Companies sold 536 billion rupees of notes so far this year, compared with 493 billion rupees in the fourth quarter.
National Housing Bank

“The government’s borrowing plan and other market developments give us reason to believe that fundraising will be different from what we had envisaged,” R.V. Verma, chairman and managing director of National Housing Bank, said in a telephone interview from New Delhi on April 2.

Demand faltered at India’s first debt sale of the financial year that began April 1. Primary dealers, who underwrite sales, bought 6.6 percent of the 180 billion rupees of the notes offered April 3.

Sovereign bonds fell, pushing up yields on the most-traded securities due in November 2021 to a four-month high of 8.73 percent after the auction. Yields declined 3 basis points to 8.69 percent on April 4.

Funds based abroad bought $3.74 billion of Indian local- currency bonds this year to benefit from rising yields. That helped the rupee rebound 3.8 percent this year, following last year’s 16 percent slide, Asia's worst currency performance, according to data compiled by Bloomberg. The rupee weakened 0.8 percent to 51.11 against the dollar on April 4 in Mumbai.
Overseas Borrowing

The cost of protecting the notes of State Bank of India against default dropped 9.8 basis points this month to 327.6 as of April 4, according to CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in privately negotiated markets. Some investors consider the lender a proxy for the sovereign. The swaps pay face value should a company fail to adhere to its agreements.

Some Indian issuers are turning to overseas sales as the nation cuts taxes on interest income to international borrowers and amid concern the Reserve Bank won’t lower interest rates from 8.5 percent as early as anticipated.

Power Finance Corp., the second-biggest issuer of rupee notes this year, is planning investor meetings this month for a possible benchmark dollar bond sale, a person familiar with the matter said April 4. That typically means at least $500 million.
Cash Situation

“Lending rates are not going to come down soon, because not only do they need a reduction in the benchmark rate but the cash situation in the banking system needs to improve,” Shailendra Bhandari, managing director and chief executive of ING Vysya Bank Ltd., the Indian unit of the biggest Dutch financial services company, said in a March 29 interview.

Lenders have borrowed from the central bank on each business day since Oct. 5 through repurchase auctions.

Slowing inflation may still allow policy makers to lower interest rates for the first time since 2009, said Mangalore Devadas Mallya, chairman and managing director of state-owned Bank of Baroda. “We have conveyed to the central bank that interest rates are high and we need to work out monetary easing measures without impacting inflation,” Mallya said after a meeting with Governor Duvvuri Subbarao in Mumbai on April 4.

Gains in the wholesale-price index averaged 6.75 percent in the first two months of this year, compared with 9.5 percent in the whole of 2011, official data show.

India’s Finance Minister Mukherjee on March 16 projected record borrowing at 5.69 trillion rupees to finance the deficit. The Reserve Bank has said the shortfall may increase the risk of inflation.

Managing the borrowing plan will be a challenge, Harun Rashid Khan, a central bank deputy governor, said at a press conference in Mumbai on March 16 after Mukherjee announced the budget proposals for the year starting April 1.

“The government’s debt sale plan is going to push the premium for money higher,” Rajiv Kumar Bakshi, an executive director at Bank of Baroda said in a telephone interview on April 2. “Company borrowing will become more vulnerable to interest costs in coming months as the macroeconomic situation leaves little room for comfort.”

To contact the reporter on this story: Anoop Agrawal in Mumbai at aagrawal8@bloomberg.net

To contact the editors responsible for this story: Hari Govind at hgovind@bloomberg.net; Shelley Smith at ssmith118@bloomberg.net
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